Natural gas at $5 is ‘not impossible’: Citi Research

Natural-gas futures jumped on Wednesday, set for their highest close since June 2011, and prices may still have quite a rally ahead.

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Jan. 22, 2014 in New York City.

February natural gas
was last at $4.68 per million British thermal units, up 24.5 cents, or 5.5%, on the New York Mercantile Exchange. It was set for highest settlement in about 2 and a half years, FactSet data, tracking the most-active contracts, show.

“With tight fundamentals, $5 gas is not impossible,” analysts at Citi said in a note Wednesday. Natural-gas futures haven’t closed at $5 or above since mid-2010.

Strong demand is expected to push gas inventories to very low levels with cold weather lingering, the Citi analysts said, adding that the end of March level is expected to fall to 1.256 trillion cubic feet. As of the week ended Jan. 10, they stood at 2.530 trillion cubic feet, down 443 billion cubic feet from the five-year average, according to data from the Energy Information Administration.

The EIA will issue its latest weekly data on Thursday morning. Analysts surveyed by Platts forecast a decline of between 102 billion cubic feet and 106 billion for the week ended Jan. 17.

Platts\’ oil and natural-gas analytics unit Bentek Energy said it expects Wednesday\’s total U.S. natural-gas demand to hit 122.3 billion cubic feet — which would be the 4th highest level on record but 16.8 bcf shy of the record set on Jan. 7. On Thursday, Bentek Director of Energy Analysis Jack Weixel sees demand rising another 4.5 bcf to 126.8 bcf.

“If a blocking pattern were to form over the North Atlantic/Greenland area, then cold air could be trapped in the Eastern U.S., keeping temperatures low, driving demand higher and depleting gas inventories further,” Citi analysts said.

“The production growth that the market is counting on to replenish storage may disappoint,” they said.

Citi expects production to grow by 2.7 billion cubic feet per day but the output may come well short of the target. “Very cold weather could slow oil and associated gas production growth,” the analysts said.

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